California told it has no right to halt sale of state assets

SAN FRANCISCO — The trial over a lawsuit aiming to force California officials to sell 11 state properties to private investors for US$ 2.3 billion and then have the state lease them back started Tuesday, with a lawyer for the investors arguing that the state had no legal basis to stop the sale.

The sale was championed by former governor Arnold Schwarzenegger as a way to help the state plug a budget deficit. But Gov. Jerry Brown pulled the plug on the plan in 2011 after independent analysts said it would end up costing the state as much as US$ 1.5 billion.

California broke the sales contract because of a change in policy and then made up explanations to try to validate the decision, Angela Agrusa, a lawyer for investment group California First LP, told San Francisco Superior Court Judge Garrett Wong.

“The governor changed his mind,” she said in opening remarks. “His personal viewpoint, his policy reason is not a legal reason to breach a contract.”

We have a strong case and firmly believe the state will prevail. BRIAN FERGUSON CALIFORNIA DEPARTMENT OF GENERAL SERVICES

Lawyers for the state Department of General Services, which negotiated the sale, were scheduled to deliver their opening statement later in the day. The trial is expected to last several weeks, and an appeal is likely.

The department says in court documents that the contract was terminated when California First failed to make a payment on time.

“We are confident that once the facts of the case are presented it will be clear that this lawsuit is a misguided effort to resurrect a long- defunct contract,” Brian Ferguson, a spokesman for the Department of General Services, said in a statement. “We have a strong case and firmly believe the state will prevail.”

California First — a consortium of investors led by a Texas real estate firm and a private equity firm based in Irvine — would have made $ 70 million in profit in one year on the sale and leaseback agreement initially.

The figure would have climbed to more than $ 100 million by year 20, the last year of the lease agreement, Agrusa said.

A 2010 analysis by The Associated Press, however, found it would cost the state far more to lease the buildings than to continue owning and maintaining them.

The independent Legislative Analyst’s Office subsequently reached the same conclusion.